Nationalisation the Irish solution to the Anglo Irish problem

Some time ago I got a contribution on a post on Anglo Irish from a pensioner who invested a significant sum in Anglo Irish and now it was almost gone. Tonight’s nationalisation effectively ends that investment and its people like him who I have most sympathy for tonight, his money is gone and he will have to accept whatever the government proposes as compensation and to add insult to injury he’ll now see his taxes go to fund the bank into the future.
According to George Lee the government u-turn occurred as significant investors had withdrawn money during the week and there was a fear of a run on the bank. Interestingly the move occurred just hours ahead of the EGM when shareholders were set to ask hard questions of the directors and executives not just in relation to the loans to the former CEO and Chairman Sean Fitzpatrick and as to who in the bank knew what and at what stage but also in relation to the role of the auditors and the Irish Financial Services Regulatory Authority. The defence by IFSRA at the Dail committee this week that officials knew in Autumn 2007 about the activities of Sean Fitzpatrick yet did nothing as they were “too busy” raised many eyebrows among investors. No other issue has publicly brought so much attention to IFSRA so one wonders as to the extent of the matter that officials considered more important than the mere borrowing of in excess of €78M by an official from his own bank that had kept IFSRA busy at this time!
Based on the share price about 35% of the banks present capitalisation is presently tied up in a loan to Mr Fitzpatrick. I hope that Mr Fitzpatrick will be able to meet his obligations to his new shareholder and it would be interesting to have heard from the EGM where the money was invested by Mr Fitzpatrick and as to how he proposed to repay. The reason for the EGM has now disappeared but it goes ahead without a motion on recapitalisation.

Other questions need to be answered about the purchase of shares in Anglo by Sean Quinn and as to how this purchase was financed. As with the Fitzpatrick loan the purchase was less than transparent. I actually expected the government to move much faster at Anglo and I posted about a month ago that it could well happen over the Christmas when most markets are closed. It is certainly very unusual for a nationalisation to happen over a working night and not a week-end. Is it any wonder that the NY Times described Ireland as the wild west of European finance? The state will find it cheaper to buy the bank using the NTMA rather than re-capitalise. Trading in shares will be suspended. But what now for the country’s newest civil servants, what will happen the bank?
It seems to me that the bank is finished. Fianna Fail, the builders and the bankers may look on the nationalisation as the end of an era. However with the right management I hope something could be saved and it could be the start of a new epoch. But this move is a reluctant move and the government statement shows no sense fo being committed for the long haul or bing prepaed to resell in the medium term. There is a certain irony of Fianna Fail and the Green Party complete with Trevor Sargent who famously produced cheques sent to members of Dublin County Council from developers now stepping in to save developers from collapse by shoring up the bank that lent them money in the first place. The golden circle of Fianna Fail, money and speculators continues to thrive despite fiscal adversity using as cover an excuse that if one bank fails they’re all in trouble. Lets see the state taking as supportive a role with pension schemes many as insolvent as Anglo Irish Bank. I think an inspector should be appointed to look forensically at the bank’s activity in the past and deal with historic issues and that a management team be appointed to work through the bank’s commercial debts/loans and see what can be retrieved from that for the benefit of the new shareholder, the citizen.

Uncertainty continues in Irish banking circles

Against a background of resignations and rumour the Irish banking industry stumbles on. Anglo Irish, IFSRA and next it’s speculated Bank of Ireland. This week end saw the announced retirement of the CEO of IFSRA Patrick Neary following criticism of his office over communication failures arising from Sean Fitzpatrick’s loans from his own bank Anglo Irish. There is a real need for a more stringent regulatory framework in the financial services sector and before anyone else takes over at IFSRA they have that right to significnatly increased powers.
However with the EGM of Anglo Irish due at the end of this week shareholders will doubtless have an interest in one paper today. Further evidence of links between the bank and the Dublin Docklands Development Authority emerged. Lets recap on previous links, Sean Fitzpatrick former Anglo Irish CEO was a member of the DDDA board when developers who were Anglo Irish customers received planning permissions from the authority. Lar Bradshaw who chaired the DDDA joined the Anglo Irish board but resigned with Fitzpatrick. Now it seems a DDDA board member is married to a top Anglo Irish official who works in the bank’s private finance operation. Of course there's no suggestions of anything other than the highest ethical practise as Anglo Irish's track record stands shoulder to shoulder with other Irish financial institutions as exemplary. However the paper noted that no one was available to speak and phone calls weren't returned. Why is Anglo Irish employing a financial spin firm in London?
By this time next week the Department of Finance may have persuaded shareholders that it should control 75% of the Anglo Irish shares. Perhaps it’s time to send in an inspector to investigate before the necessary legislation is passed. Any returning immigrant would be confused where Anglo Irish has come from. If Bank of Ireland was ascendancy 19th century money, Allied Irish was Lemass era 1960’s money the bank that once congratulated a customer who became Taoiseach with a salutary letter intoning this great little country, then Anglo Irish is Celtic tiger money.

Building a society is not the same as making a profit in a free market economy. A handful of players have effectively driven the economy into the ground in their endless pursuit of profit. Developers, cheap finance and Fianna Fail created a myth of wealth based on appreciating asset values while elsewhere there was very little happening. When it came to leisure the phalanx of universal master’s sport of choice was horse racing, builders invested in bloodstock and bested one another to own larger stables of thoroughbreds. Cheltenham became the Galway tent on tour. Presumably from their perspective there’s no sport more appropriate for Ireland’s new royalty than the sport of kings. Indeed Anglo Irish sponsored the opening day of the festival the now ironically entitled Supreme Novices Hurdle for 4 year old horses. Ironically some developers are now off loading their horses anxous not to be seen in the social columns at race meetings.

Anglo’s singular pursuit of commercial investment has exposed it to ruination. As a consequence 4 year olds in this country will now have increased class sizes to pay for the party. Amazingly Cheltenham 2009 again sees Anglo Irish Bank sponsor this Cheltenham race despite their finacial colapse. How much does this cost and why should shareholders wear it any further? What does the new putative shareholder Brian Lenihan think of the horse fest sponsored by a zombie bank for insolvent Irish developers and party supporters in the Cotswolds for which the Irish taxpayer may well foot the bill? Surely spending hard earned euros in Her Majesties domain contradicts Lenihan’s warning about patriotic duty?

Finally I’ve checked the field 2 months out from Cheltenham for the Anglo Irish Bank Supreme Novices Hurdle and it may prove embarrassing to Anglo Irish and the Minister that at this stage good prices are available for Honest John, Does Less Than Me, Endless Intrigue, and you’d better believe this it’s true, Conflict of Interest! No better epithet for the Celtic Tiger era. At least on this gamble my hands will stay firmly in my pockets!